Saturday, September 19, 2009

"This scheme is speculation at best, and public thievery at its worst...the public approved these bonds thinking they were for non-toll roads."

Taxpayers' hoodwinked: freeway bonds steered to toll roads

Bait and switch


Terri Hall
Copyright 2009

Rick Perry's Texas Department of Transportation (TxDOT) is about to launch Texans headlong into a similar financial crisis that caused the mortgage disaster - multi-leveraging debt. Except this time, it's being applied to toll roads. One of the reasons the mortgage crisis came about was this notion of using debt as collateral for other loans.

TxDOT is not only planning to use debt as collateral for yet more toll road debt, they want to leverage that debt multiple times in risky financing schemes Perry calls "innovative," but it's code for house of cards and spells financial DISASTER for Texas taxpayers.

Texans voted to approve $5 billion in bonds for building new highways by passing Proposition 12 in November of 2007. They did so under the auspices that the bonds would be used to build freeways, not toll roads. Last July, the Texas Legislature authorized $2 billion of the Prop 12 bonds. One billion in these bonds, which are taxpayer-backed borrowed money, would be leveraged again to use as collateral to get more borrowed money.

The idea is to pull cash out of the deal up front to build more toll roads built with yet more borrowed money. Think of it as taking out a second, third, and even fourth (or more) mortgage on your house, and we as the borrowers don't get a say on the terms or the level of risk, yet we will be obligated to pay it.

One of the intense battles during the special session called by Perry in July, involved the proposed creation of a "revolving fund" that would have leveraged debt multiple times over with the intention of raiding public pension funds, among other funds, in order to subsidize toll projects that can't pay for themselves.

Taxpayer hero Rep. David Leibowitz, Rep. Warren Chisum and others, at the loud urging of grassroots groups like TURF, helped us kill the revolving fund. Many lawmakers are very concerned about this multi-leveraging of borrowed money, so they put one billion of the bonds into the State Infrastructure Bank instead, thinking it would prevent multi-leveraging. However, TxDOT has telegraphed it intends to do it anyway!

Fast forward to last Thursday's House Transportation Committee hearing. TxDOT announced its intentions to leverage the bond debt multiple times in order build as many toll roads as possible. As an example, Chairman of the House Transportation Committee Joe Pickett warned the following could be a scenario - a tolling authority could leverage $1 billion in bonds to get $1.8 billion up front and bundle it, like investors did with mortgage loans, to turn around and sell a new package of loans in the amount of $1.5 billion.

Even worse, the committee determining the rules for how the State Infrastructure Bank loans of Prop 12 bonds will be used are the very tolling entities who will benefit from multi-leveraging the bonds for their own toll roads projects (Alamo RMA, Central Texas RMA, Harris County Toll Road Authority, North Texas Tollway Authority, the Water Development Board, for its experience with multi-leveraging, Texas Association of Counties, and Texas Municipal League...not one of them elected). Calling it the fox guarding the hen house is an understatement!

Another battle during the special session was over whether these bonds backed by general taxes ought to be used to fund toll roads that will, essentially, tax the taxpayers again, and with more interest, on the same money. Rep. Leibowitz offered an amendment to prevent the bonds from going to toll roads, but Rep. Larry Phillips and Rep. Linda Harper-Brown outflanked him so that half the bonds can be used for tolled managed lanes.

So to help you follow the money, one billion of the $2 billion in bonds the Legislature authorized to build highways, will get dumped into the State Infrastructure Bank that will loan taxpayer-backed borrowed money to toll authorities. The toll entities will then leverage that money yet again to borrow against future anticipated surplus toll road revenue in order to pull out cash up front to go spend on yet more debt to build more toll roads (before the "surplus revenue" is even in hand).

This scheme is speculation at best, and public thievery at its worst. The shame of it all is that the public approved these bonds thinking they were for non-toll roads, now half of the $2 billion currently on the table will most certainly be going to toll roads since many local governments have no way to pay back a loan other than through tolling. Wake-up, folks. The fiscal malfeasance occurring under the Perry administration on the state level is every bit as bad as it is on the federal level, for which Perry hypocritically criticizes every chance he gets.

Take action, protect the integrity of our financial system

TxDOT has not yet made the rules for these funds final, so the grassroots MUST contact their state lawmakers IMMEDIATELY to say "NO WAY" to multi-leveraging debt for such risky financing schemes. Find your state representatives here.

With a new constitutional amendment election coming up this November, it's good to remind ourselves of what our politicians have sold us in the past before we buy into what they're trying to sell us this time around. Buyer beware! More on the Constitutional ballot propositions to come...

© 2009

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